Pricing Variance Swaps with Cash Dividends PDF Download
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Author: Timothy Klassen
Publisher:
ISBN:
Category :
Languages : en
Pages : 7
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Book Description
We derive a simple formula for the price of a variance swap when the underlying has cash dividends.
Author: Timothy Klassen
Publisher:
ISBN:
Category :
Languages : en
Pages : 7
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Book Description
We derive a simple formula for the price of a variance swap when the underlying has cash dividends.
Author: Hans Buehler
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This article shows how to incorporate cash dividends and credit risk into equity derivatives pricing and risk management. In essence, we show that in an arbitrage-free model the stock price process upon default must have the form S(t) = { F(t) - D(t) } X(t) D(t) ] where X is a local martingale with X(0)=1, the curve F represents the "risky" forward and D is the floor imposed on the stock price process in the form of appropriately discounted future dividends. We show that the method presented is the only such method which is consistent with the assumption of cash dividends and simple credit risk. We discuss the implications for implied volatility, no-arbitrage conditions and we derive a version of Dupire's formula which handles cash dividend and credit risk properly. We discuss pricing and risk management of European options, PDE methods and in quite some detail variance swaps and related derivatives such as gamma swaps, conditional variance swaps and corridor variance swaps. Indeed, to the our best if our knowledge, this is the first article which shows the correct handling of cash dividends when pricing variance swaps. The present version 1.31 has been updated after several comments from readers.
Author: Fabien Le Floc'h
Publisher:
ISBN:
Category :
Languages : en
Pages : 18
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Book Description
We present in this paper the practical aspects of pricing of variance swaps, volatility swaps, variance options and volatility options under the model of Carr and Lee. Popular related derivative products to the pure vanilla variance swaps are reviewed: the forward starting variance swaps, variance swaps on a foreign asset, variance caps and floors. We will also pay attention at the effect of cash dividends on the variance swap price.
Author: Christoph Burgard
Publisher:
ISBN:
Category :
Languages : en
Pages : 25
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Book Description
We consider weighted variance contracts in which the realised variance is subjected to a spot dependent weighting function, a notable example of which is the corridor variance swap. Such payouts admit a quasi-static hedge involving European style options with expiries at all dates up to the maturity of the contract. This note proposes a method for over-hedging weighted variance using only a finite number of maturities. Moreover this approach is shown to have good convergence properties and allows one to treat dividends in a natural way. As an application the method is used to relate corridor variance with the variance implicit in the definition of the HSI volatility index.
Author: Song-Ping Zhu
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
In this paper, we present a highly efficient approach to price variance swaps with discrete sampling times. We have found a closed-form exact solution for the partial differential equation (PDE) system based on the Heston's two-factor stochastic volatility model embedded in the framework proposed by Little and Pant. In comparison with the previous approximation models based on the assumption of continuous sampling time, the current research of working out a closed-form exact solution for variance swaps with discrete sampling times at least serves for two major purposes: (i) to verify the degree of validity of using a continuous-sampling-time approximation for variance swaps of relatively short sampling period; (ii) to demonstrate that significant errors can result from still adopting such an assumption for a variance swap with small sampling frequencies or long tenor. Other key features of our new solution approach include the following: (1) with the newly found analytic solution, all the hedging ratios of a variance swap can also be analytically derived; (2) numerical values can be very efficiently computed from the newly found analytic formula.
Author: Ilya I. Gikhman
Publisher:
ISBN:
Category :
Languages : en
Pages : 7
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Book Description
Critical point on variance swap pricing is established.
Author: 鄭睿斌
Publisher:
ISBN:
Category :
Languages : zh-CN
Pages : 84
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Book Description
Author: Song-Ping Zhu
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
This paper is an extension to a recent paper Zhu and Lian (2009), in which a closed-form exact solution was presented for the price of variance swaps with a particular definition of the realized variance. Here, we further demonstrate that our approach is quite versatile and can be used for other definitions of the realized variance as well. In particular, we present a closed-form formula for the price of a variance swap with the realized variance in the payoff function being defined as a logarithmic return of the underlying asset at some pre-specified discretely sampling points. The simple formula presented here is a result of successfully finding an exact solution of the partial differential equation (PDE) system based on the Heston's (1993) two-factor stochastic volatility model. A distinguishable feature of this new solution is that the computational time involved in pricing variance swaps with discretely sampling time has been substantially improved.
Author: Hans Buehler
Publisher:
ISBN:
Category :
Languages : en
Pages : 18
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Book Description
We discuss a time-homogeneous equity stock price modelling approach with a consistent dividend process such that at any point, conditional on the state variables of the model, short-term implied dividends are "cash-like" (constant) and long-term dividends are "proportional".Our approach is based on a general representation for dividend paying stocks where we prove that the stock price process is the sum of an "inner" process plus the sum of the expectation of all future (appropriately discounted) dividends under the risk-neutral measure.This note summarizes results presented in 2012 at Global Derivatives. We discuss dividend dynamics in the proposed approach; calibration to dividend options and the equity implied volatility surface are only touched upon.
Author: Gilles Boya
Publisher:
ISBN:
Category :
Languages : en
Pages : 14
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Book Description
The aim of this article is to provide a fast and efficient formula to price vanilla options in presence of cash dividends. Bos & Vandermark have provided a simple and intuitive formula but not really accurate for long maturities or for strikes far from the money. Many authors have proposed some accurate formula but with a polynomial (quadratic for Henry-Labordère) algorithmic complexity in the number of dividends. In this article we derive a formula whose accuracy is equivalent to that of Henry-Labordère but with a linear algorithmic complexity, preserving the call-put parity and the continuity of the vanilla price at each ex-dividend dates.
